U.S.-Listed Israeli Companies the Next Big Buying Opportunity?

By George Leong, B.Comm. Published : April 2, 2014

Israel has grown to become a key producer of technology and medical devices companies outside of the United States and Canada. We are talking about a very small country of less than eight million people, but which has become known as the “Silicon Valley of the Middle East.”

In fact, after China and Canada, Israel-based companies are the third-most-listed on U.S. stock exchanges as far as international listings, and they may be offering a buying opportunity.

Contrary to companies emerging out of China, Israeli companies have, so far, been quite clean as far as reporting reliability and confidence in the financial results, something that has escaped Chinese stocks that make them untrustworthy to investors. (Read “Chinese Stocks Promise Higher Potential Gains?”)

While there are major big-cap companies out of Israel, such as biotech Teva Pharmaceutical Industries Limited (NUSE//TEVA), there is also an excellent speculative buying opportunity in some of the small-cap stocks emerging from the country.

I have listed three speculative Israeli stock plays that are worth a closer look as a buying opportunity.

In the small-cap technology space, another buying opportunity is Israel-based Magic Software Enterprises Ltd. (NASDAQ/MGIC), which has been providing information technology services for more than 30 years. The company has built ventures with key software partners, including International Business Machines Corporation (NYSE/IBM), Microsoft Corporation (NASDAQ/MSFT), and Oracle Corporation (NYSE/ORCL).

In 2013, the company was ranked 37th on the Deloitte Israel Technology Fast 50 list.

Magic Software is profitable, with higher sequential earnings in six straight years, from 2006 to 2012, prior to a small decline in 2013. The valuation is reasonable at 14.66 times (X) its 2015 earnings.

Chart courtesy of www.StockCharts.com

Another buying opportunity may be small-cap Israeli tech play AudioCodes Ltd. (NASDAQ/AUDC), a developer of advanced voice-over-IP (VoIP) along with converged VoIP and data networking products and applications. The company sells to two major markets: broadband, mobile, and enterprise networks and cable.

Chart courtesy of www.StockCharts.com

What AudioCodes needs to do is deliver earnings and revenue growth. Earnings are expected to come in at $0.20 per diluted share in 2014 and $0.27 per diluted share in 2015, according to Thomson Financial.

In the medical device area, a buying opportunity is Syneron Medical Ltd. (NASDAQ/ELOS), a maker of aesthetic medical devices with markets in more than 80 countries, including North America, France, Germany, Italy, Portugal, Spain, the U.K., Australia, China, Japan, and Hong Kong. The devices are used in body contouring, hair removal, wrinkle reduction, skin work, and the treatment of acne, leg veins, and cellulite.

Chart courtesy of www.StockCharts.com

A plus is the company’s return to profitability in 2013 and expectations for continued growth in 2014 and 2015. Syneron was ranked 35th on the Deloitte Israel Technology Fast 50 list in 2013, and may now be a buying opportunity.